Two Firms in a Local Market Compete in the Manufacture

question 80

Essay

Two firms in a local market compete in the manufacture of cyberwidgets.Each firm must decide if they will engage in product research to innovate their version of the cyberwidget.The pay-offs of each firm's strategy is a function of the strategy of their competitor as well.The pay-off matrix is presented below. Does either player have a dominant strategy? Does the game have any Nash equilibria? What is the maximin strategy of each player in the game?

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Definitions:

Property Rights

The legal rights to use, control, and derive benefits from a property or resource.

Externality

A consequence of an economic activity experienced by unrelated third parties; it can be either positive or negative.

External Costs

External costs, or negative externalities, are costs that are not borne by the parties directly involved in a transaction or activity but are imposed on third parties or society at large, such as pollution.

Internalized

This term generally refers to the absorption of external effects or costs by the decision-maker, often in the context of environmental economics.